“ Take the Money and Run”
by Christopher Menkin
The story of how the RW Professional portfolio went to Bank of Boston
and finally to Sierra Cites
This story is pieced together over a two year period, with numerous “off the
record” discussions with many of the “players.” None of the participants want
to be acknowledged nor did they want to even substantiate or correct anything
from the notes taken. The great majority of this story came from former Sierra Cities/First Sierra officers directly with the stipulation they not be quoted directly.Note: The Company was first called “First Sierra” and changed its name to
Sierra Cities to enter the Internet marketplace.
The RW lease portfolio was originally at Denrich Leasing, but it went to AT&T and finally to CIT after a short stop at Newcourt Financial. When the CIT relationship ended with lawsuits and counter suits due to disputes over payments not made from lessees, retention of early payoff monies and record keeping by RW, Sierra Cities apparently ignored it. They had taken the account away from CIT’s predecessor in 1995 and at the time, said the payments were coming in like clockwork.
It appears the RW Professional portfolio began developing when Bob Quinn resigned from ATT Capital and joined First Sierra as VP of Credit in 1994. Since he had worked with RW Professional at Denrich and ATT Capital, it made sense to recruit the business for First Sierra. In fact, when Mike Wing and Chuck Brazier
first put the private label program together for Denrich Leasing in 1991, they had in mind bringing in Bob Quinn from Bank of Boston for his expertise in credit.
Bob Quinn was hired by Denrich and moved to Florida and was there in time to witness the damage when Hurricane Andrew struck in August 1992. When Denrich was acquired by ATT in late 1992, Bob Quinn brought Barry Drayer and RW with him along with Barry Drayer’s personal guaranty to AT&T. After living through the reported less than pleasant changes at AT&T after the Denrich purchase, Bob Quinn resigned with his trusted sidekick Pete Smith and both joined the group led by Tom Depping of Sun America who had decided to put together a conglomerate of “private label” brokers. Naturally, Bob Quinn recruited RW Professional after joining First Sierra since he had an excellent history with RW and Barry Drayer. Most observers tell us that he brought Barry Drayer’s personal guaranty with him. As the RW portfolio grew each month, the loss reserve held by First Sierra grew to over $5,000,000.
Leasing News was not able to confirm the personal guaranty aspect of the portfolio when Sierra Cities began its relationship with RW. There have been conflicting stories about Drayer’s personal guaranty since many felt it was not necessary based on RW’s performance history.
In June, 1997, Depping decided to move the credit function from Jupiter, Florida to Houston. Quinn was the vice-president of credit who had been managing the portfolio and appears to have had a full handle and watchful eye on the operation. He was reportedly a key to running the internal end of the process. Ironically when Quinn joined First Sierra, he purportedly had a deal with Tom Depping to stay in Jupiter and always have the credit piece in Jupiter. According to a highly
reliable source, “Tom showed up one day in June, 1997 and told the staff that he was moving the function to Houston at the SAME time Bob heard it. What a guy!”
Quinn did not move so Leasing News was told Depping placed him on the “s**t list.” He actually spent six months at the Fort Lauderdale office ( Eric Barash’s operation.) He had a telephone and a computer. But neither Depping nor anyone else acknowledged his presence. The Jupiter operation was not moved to Houston until sometime in 1998 as Quinn commuted over 150 miles a day to the Fort Lauderdale office from mid-1998 until January,1999, when Eric Barash left Sierra Cities. (Note: Barash was never involved in the private label program and was a friend of Bob Quinn. Leasing News was not able to obtain a comment from
Mr. Quinn for this series and this information comes from people who worked
with him and knew him well. editor.)
Quinn was the only one who had kept the operation under control, watched everything, asked questions, and apparently wasn’t afraid of the man in Chase Tower, everyone told Leasing News. In Florida, he was effectively “out of the loop.”
The entire Private Label Recourse Program was assigned to Chuck Brazier that summer since it was his job to grow the recourse sources including RW
Professional. Pete Smith moved from Jupiter to Houston and became the
contact for RW and the person responsible for booking his deals. Brazier
was spending four days a week in Houston, Friday in his Oakmont office
in Florida, commuting. Pete Smith reported to him about major accounts,
but in reality, all involved said Tom Depping personally ran the RW Professional
and Mid-Am relationship.
According to the sources present at the time, Pete Smith had little or no true authority to be the watchdog like he was when he worked for Quinn.
Obviously Chuck did the selling, the wholesale broker relationship and it appears no one was watching the henhouse for the MidAm Credit, RW and other recourse deals that kept coming in the door. Depping’s main concern was to book business.
It is reported he was the first to arrive and the last to leave. Even his detractors called him a very hard worker.
Leasing News tried to reach Chuck Brazier for a comment, but was unable to do so. It is reported his job was attracting and holding onto accounts, on
the road, on the telephone, and not involved in the day-to-day operations.
It was reported to Leasing News that Chuck Brazier had offered his resignation
several times due to his dissatisfaction. After his very good friend Oren
Hall resigned, he was even more dissatisfied and resigned to join Centerpoint. The resignation cost him some significant money to buy out of his non-compete provisions Leasing News was told. However, all that we could verify was the fact he resigned to join Centerpoint with Gordon Roberts, working directly under the owner, John Otto.
No one Leasing News spoke to seems to know who had direct responsibility
after Chuck Brazier left to join Centerpoint until Dan Ciocca took over the
program sometime in mid-1999. Several sources told Leasing News there was
not an actual direct report handling the private label program. Pete Smith and Lon
Thompson did the day to day work, but they did not report directly to Tom Depping. There were no scheduled review meetings regarding RW, we were told,
but they did have regular meetings for management/credit and scheduling.
Mike Wing may have been involved in these meetings since he also came from Denrich, but it appears Tom Depping was micro-managing it as his world was beginning to fall apart. The bank, the internet, the “roll over” of independent leasing companies under one “franchiser,” and Chase Tower were headed
for the “perfect storm.”
Thomas J. Depping Looking Out Upon Houston, Texas
According to one source, there were so many changes going on, people leaving, difficulties with sales and changes seeming to be one thing one day and another the next, the operation was basically running itself without a “day-to-day” leader.
In 1998, Mike Wing had the full credit function. Pete Smith and Lon
Thompson handled the day to day operations of the RW program along with
the other Private Label Recourse customers like MidAm. Greg McIntosh did not become manager until January 2000.
In late 1999, Barry Drayer apparently met with Depping in Houston to request that part of his loss reserve be refunded due to minimal losses in the portfolio. The portfolio was performing so well that many said “it was too good to be true.” It seems Drayer wanted cash. The financial settlement received by RW was described to us, but since we cannot verify the figures, we cannot print the information. In retrospect, the various lawsuits indicate it took a lot of cash to keep the alleged “Ponzi like” scheme working
The Sierra Cities cash reserves against losses was as high as $5 million.
The “hold back” was quite sufficient Tom Depping reportedly thought. What went on between the ( name of the floor ) is not known. Greg McIntosh reported
to Depping about the private label program, but was actually not formally
in charge until January, 2000. There were several visits to Houston to meet with Tom Depping by Barry Drayer, but Greg McIntosh had no comment to make.
Perhaps the negotiation for the life insurance was a “trade” for the removal of Mr. Drayer’s personal guarantee at that point. A key player in the negotiations said that the personal net worth of Mr. Drayer was a half million, so a $1 million
insurance policy seemed like a good idea to trade the cash for the policy.
The decision was made solely by Tom Depping, according to all the key
players we spoke with.
Several of the key officers were not in favor, but the thrust was to apparently to put more business on the books, sell the company, and as the man at one
time in charge of sale, Mark McQuitty described it , “...move on before the house of cards collapsed.”
Barry Drayer was the vice-president of RW Professional Leasing a/k/a Professional Leasing Services. His sister Rochelle Besser was the president. If credit was to be run by a community bank, it would be on Rochelle, not Barry. While a personal guaranty may not have been used in assigning leases, it is a common practice in the financial community to run credit on the president, whether they personally guaranty or not.
When Barry Drayer started his relationship with banker Bob Quinn at the
Bank of Boston, he was the president and personally guaranteed the recourse
and non-recourse lines. It was this manner as the portfolio was changed as
the lenders were changed as companies were sold and bought. In part
one of this series, RW Professional went with Quinn to Denrich to AT&T and finally to Sierra Cities.
Drayer brought along his personal guaranty to transactions, but he wanted it removed and he also apparently needed $1 million in cash. He had $5 million in a “hold back” with his portfolio at Sierra Cities. Sierra Cities CEO Tom Depping personally handled all the top accounts. He had moved the operation from Florida
to Houston, thinking that Quinn would follow. Whether Quinn would have actually moved to Houston to manage the portfolios, his apparent betrayal by Depping and the sudden “everyone is moving” without notice that allegedly turned him off ( and many others, too.)
Even Chuck Brazier did not move to Florida, but commuted and lived
in a corporate apartment three nights a week.
The CIT lawsuit was a factor that had to be considered. It was originally
$10 million, but had wound down to $500,000 over the course of the dispute.
The trade of $1 million in cash to Mr. Drayer and the release of his personal guaranty in return for a $1,000,000 life insurance assignment and the promise to deliver more business was reportedly not concluded “over night.” It was a negotiation that involved several key officers, not just Tom Depping, according to many of the sources we spoke with. It is reported that at least one key officer felt the trade was a big mistake.
At the time, it was considered prudent to do the trade because Drayer evidently “needed” the cash and those involved allegedly wanted to keep him happy so he would keeping sending in“ good business,” and the portfolio was performing “perfectly.” The medical paper was the best and Drayer’s business was very necessary, especially since the company was up for sale ( there is a slide of time between the private decision and the reality of actually seeking suitors.)
Sierra Cities needed the business, particularly since it was on the market
for sale. Talk with several top buyers was very promising.
At that time, RW Professional was “the cat's meow,” according to Leasing News contacts. No delinquencies to speak of, payments made on time, and
great medical paper from a veteran in the industry. It was also a “house
account” with high yields, and everything was going as “perfectly agreed.”
Drayer was apparently given the red carpet treatment every time he visited Houston
Drayer purportedly explained the problems with “Old Kent” and “CIT Financial” were in actuality disagreements about “late charges”, “purchase options”, and “interim rents”. At that time, the lawsuit with CIT was down to approximately $500,000, Leasing News was told. In comparison to the loss reserve of $5 million cash, a large and well performing portfolio along with Barry Drayer’s reputation of taking care of everything, the release of part of the loss reserve was reportedly considered to be a “small” risk, according to several sources we spoke with.
The CIT lawsuit was seen as a plus for Drayer, according to all the people
we spoke with. It was viewed as very positive. CIT had inherited a 10 year $100,000,000 plus RW relationship through the acquisition flow through Denrich, ATT, Newcourt and finally to CIT. It was the consensus at the Sierra Cities staff level, after this much time(10 years) and servicing by three or more companies , if all they were arguing about was $500,000 ( after a completely liquidated $ 100,000,000 portfolio) then one could make a reasonable assumption that CIT had not had any serious issues with RW. The lawsuit with CIT was definitely not ignored. It was viewed as making a hero out of Barry Drayer; making payments for lessees was purportedly seen as positive, and not a red flag.
Several of the officers actually told Leasing News “ $500,000 was nothing.”
In relationship to the size of the portfolio, the executives apparently thought it could easily be handled, and might in fact, be much lower, especially if Barry
Drayer was right about what the dispute centered on. In fact, he was
even making payments for lessees and CIT should have been happy
about it, Leasing News was told.
The key was the performance, the personal relationship that Barry Drayer,
had with his brokers and everyone at Sierra Cities “knew him well.” He always returned calls promptly, took care of any problem, and was “Johnny on the spot.”
The staff and department heads looked forward to his visits.
An executive interviewed by Leasing News via telephone, who asked not to be named, says he was employed by Sierra Cities at one time. He said he came into Houston for a meeting, and at a Chinese restaurant with Fred Van Etten, Greg McIntosh, and perhaps two other people, which for legal reasons Leasing News is not going to name, when the conversation of RW Professional Leasing came up. (Later on, the other two at that that restaurant confirmed to Leasing News that the meeting did take place).
He told the gathering he knew the company as Professional Leasing, who did
a lot of dental business when he was at the Vanguard Division of Old Kent
Bank for eleven years. He said this company ripped them off for between $6 million to $10 million. He asked, “Why should Sierra Cities do business with them?” He was told Sierra Cities had the corporate and personal guarantees---and it was recourse, so Sierra Cities was supposedly protected.
When Old Kent Financial went out of business, the employee restraining order
was no longer valid, according to the legal counsel. Susan Adamatis, who
was an employee, told Leasing News about the settlement not to disclose
the loss of the RW portfolio and the reasons behind it as part of a
cash settlement, including a restraining order that employees not divulge
“I hope this is not the same Professional Leasing on the east coast that took Old Kent Leasing for a ride on many fraudulent transactions with dental practices. If it is, I can tell everyone how it was done and what to look for since I had to charge-off the money and we ended up settling with Professional Leasing as well, “Susan
Adamatis said. “ If anyone wants some insight I would be happy to provide it.”
“A fictitious vendor supplied an application for a dental practice installing ‘NEW’ medical equipment. All credit checks were completed on the customer etc. Only if the lessee defaulted would you ever know that there was in fact no new equipment. The equipment description on the vendor invoice was either for existing equipment that was in some cases over 20 years old or it never existed. These were in fact loans. We had a couple of lessees so afraid of being sued and going to jail for fraud that they signed statements and admitted just how much cash they received. Needless to say the cash the lessee received was a lot less than the amount funded to Professional Leasing, “ Susan Adamatis concluded. “ The lessees claimed this vendor solicited them to supply additional cash for the business and all they would have to do is “sign on the dotted line.”
It was reported to Leasing News by several former vice-presidents of Sierra Cities, and confirmed by three other highly reliable sources that RW Professional Leasing was allegedly double dipping or even triple dipping deals (same deal to ATT and First Sierra and banks doing business with RW) and when RW received a payoff from a recourse client, it appears they did they did not always payoff the deal at the original funding source.
During this time, Drayer had requested $1 million in cash from his reserves
with First Sierra. He apparently needed the cash and requested a trade of a $1 million insurance policy on his life. In lieu of his net worth, and to continue to receive the “great paying” lease, Tom Depping allegedly personally approved the request, according to a very highly reliable source that was there at the time. It
is believe he relinquished the personal guaranty ( again, we could not
confirm nor get this denied, as many of the staff reportedly were not privy
to the conversations of the two individuals. Efforts to reach Mr. Depping
for a comment have been to no avail.)
Thomas J. Depping in his Office drinking Diet Coca Cola
The negotiations and trades with Drayer coincided with Tom Depping’s efforts to sell his company to American Express. He apparently wanted to continue the growth of sales in a tough marketplace. RW Professional was a house account with great yields and performance. Depping also made it know that he wanted out. It seemed as was as if his felt his luck was running out and his staff reported that he was becoming more “secluded, brooding, quick tempered and private.”
The Old Kent issues regarding RW making payments on defaulted leases, undisclosed split transactions and changing or originating vendor invoices
was considered by people Leasing News talked to as not a secret in the
leasing trade. The matter purportedly was settled between Old Kent and Drayer with a clause that no one could divulge the agreement, yet it appeared to
be “common knowledge” among people in the know. Leasing News reported a lunch held at a Chinese restaurant in Houston where key officers discussed this. However, this was not confirmed until Old Kent went out of business and the trade of cash ostensibly to keep quiet about portfolio problems made public.
In several articles, Leasing News has reported that former employees at
Old Kent now believe the agreement not to divulge this information publicly is no longer valid as the company no longer in business.
Reportedly the person in charge of RW in Houston was Dan Ciacco. He
had pulled some files, but never found any discrepancies. There
was one involving a bankruptcy, but RW explained the doctor
was still in practice.
CIT had a meeting with Dan Ciacco in Atlanta (Sept. 1999) where CIT showed them 50-60 accounts that had been split between First Sierra and ATT, which became Newcourt which became CIT. They also told them they had proof of the early payoff scheme and the fact that RW was making the payments on BK deals. Greg and Dan went back to Houston. They claimed to have talked directly with Barry Drayer, who said the dispute was over late charges, personal property taxes, and advance payments. He allegedly said he had made some payments instead of buying the leases back as the lessees were still in practice despite any credit problems. They again, do some checking, using a formula from the past, and then called CIT. They said they found no such problems with their portfolio. They also had a $5 million cash reserve, at the time, and Tom Depping told staff the company was adequately covered for any losses.
The “roll over” of companies purchased by Sierra Cities were not performing. The “entrepreneurs” told Leasing News that once purchased, the control
was moved to Houston, Texas and the method of operation changed. Don Zaretsky was very disappointed. Not as much as Mark McQuitty, who was running
the sales for the former Republic Leasing of Anaheim.
Mark McQuitty with his wife Carolann
In December, 1999, he wrote Depping that the internet and First Sierra
was not the way to create sales, predicting the bust of the dot.com
“We had made it clear to all that we didn’t want to do the deal if Tom Depping was going to change anything materially, or try to micro-manage our operation, “McQuitty said in “Whatever Happened to Republic Leasing of Anaheim.”
“Because of the representations we had made to them regarding the agreement we had with Tom Depping that no changes or tinkering would occur, all but one out of the 130 sales reps agreed to come with us, “ McQuitty added. “ You know, First Sierra stock rose to $7 on the news of our acquisition.”
“ We had an operation that was like a highly tuned precision engine, “McQuitty explains. “ It wouldn’t respond well to Saturday morning backyard tinkering by amateurs. An assimilation team was promised but it never materialized. No sooner had the ink dried on the agreement, than corporate began dismantling the Anaheim back office in an effort to consolidate with the main office.
McQuitty described his reaction in precise terms:
“This move in effect decimating the risk management team we had put in place, which had worked spectacularly for the life of the company in preventing bad deals from leaking into the system and/ or any sales-induced fraud from occurring, “ he said. “ Our crew was on top of everything with excellent control. And no sooner than the back office being dismantled, corporate went after our sales force.”
“Michael Sabel showed up on our doorstep, supposedly for a routine visit, but what turned out to be orders to fire 100 employees just before Christmas.
“Not only had we lost control of the back office functions, but now the origination side of the business as well, something we were told were the reasons First Sierra wanted us in the first place. It was a terrible time and both Jim and I had no idea about what was to happen.
“ Needless to say, this was catastrophic on company morale and on any remaining loyalties the surviving employees may have had to First Sierra, along with any credibility that we may have had as their managers and any belief that we were still in control.
“ We soon found out we were managers/VP’s in name only. And to top this off, corporate headquarters failed to keep its commitment to issue options to the top producers. They reneged on this immediately post acquisition, which had a devastating effect on morale.”
“We were now down to 25 reps from a high of 130 pre-acquisition. However, notwithstanding this small sales force, they represented over 70% of the ‘98 revenues. The best and brightest were still committed to the company and were willing to give it another chance.
“In a lengthy e-mail I pleaded with Tom Depping not to “throw the baby out with the bath water”. He did not even open it, or respond - no doubt previewed it, then discarded it. At the time, I was next to Tom Depping, the single largest shareholder employed in the company, owning over 600,000 shares and no doubt one of the top 5 or 6 shareholders of record (I still have substantial holdings). This hit me at the time as particularly troubling. In hindsight, it is clear my departure was already being planned by Tom Depping.
“It seemed as though the strategy was now on being an internet company free from the dependence on salesmen and then tying this into internet processing company... “- no commissions and cheap cost of finds. The money would surely roll in. I guess in theory it has a certain appeal, but if Tom Depping was at all familiar with our business, he would have seen it as counter intuitive.
“Not only was the original intention of training new salesmen, but even having salesman call on vendors or direct business, became the “old way” to create business. We became known as dinosaurs in our traditional way of conducting business.”
The more letters and e-mail he wrote, the more Depping was alienated by McQuitty warning him about doing sales via the internet, and actually predicting the demise of the dot.com equipment leasing industry as it was known at the time.
In retrospect, McQuitty was brilliant in his observations about the leasing
industry. He appears to also be correct that Thomas J. Depping was
isolating himself in his Chase Tower office.
Thomas J. Depping Office at Sierra Cities
Tomorrow: The Conclusion with the Latest Information